City council under the microscope - Commonsense approach needed

Greater Taree City deputy mayor, Robyn Jenkins explains the reviews our city council has been through in the past few years

"THERE is a story I tell people about the Russia/USA space race in the 1970s which I think is very relevant to Greater Taree City Council. It goes like this:

When the Yanks discovered that a biro wouldn't write in zero gravity, they embarked on a multi-million dollar research project to develop one which would. The Russians decided to use a pencil!

This is the type of council we need to ensure we have here in the Manning one which looks for commonsense, cost-effective and appropriate solutions to the never-ending issue of not having enough money.

In the past couple of years council has undergone three reviews of different aspects of its performance and I thought it would be useful to tell the associated story to the people whose money contributes to keeping the council running. It is also important to understand the context in which various comments and recommendations were made and to take a holistic view of each report and then the three together. Picking out bits and pieces to use in criticising council is neither useful nor relevant.

So, I hear you ask, what did these reviews find?

Well, overall and in comparison with other councils, council is doing reasonably well. Of course there is room for improvement and that's how it should be. Any organisation which receives funding from "the public" should always be working to improve its performance and transparency and council is no different. Council and senior staff are committed to achieving continuous improvement in everything we do.

Financial sustainability and benchmarking

In late 2011 the NSW Treasury Corporation (TCorp) undertook a financial sustainability and benchmarking assessment of all 152 local councils.

Council is a Group 4, a small/medium regional town council, along with others such as Armidale-Dumaresq, Cessnock, Dubbo, Great Lakes, Kempsey and Port Macquarie. TCorp found it would cost Group 4 councils the most to bring local infrastructure up to a reasonable standard and also that these councils had the highest deficits.

In fact, only 12 of the 152 councils were assessed as managing the infrastructure backlog satisfactorily and less than 30 per cent were managing assets maintenance effectively.

TCorp's general findings confirmed that, across NSW:

* smaller populations mean lower income for councils;

* more than 25 per cent of councils are currently in a 'weak' or 'very weak' financial position and about 67 per cent operate in a deficit;

* financial performance and sustainability has been deteriorating for some time and this is weakening the local government sector and finance and asset management skills of staff and councillors must be improved;

* most councils do not (or cannot) provide sufficient funds to maintain assets at a satisfactory standard and unless addressed the situation will continue to deteriorate. The infrastructure backlog throughout NSW is estimated at more than $7.2 billion; and

* the community needs to work together with council to ensure the spending aligns with the income. If people want to continue to receive the same level of service as they currently do then revenue must be increased to cover the costs.

In October 2012 TCorp reported that our Financial Sustainability Rating (FSR) was "very weak" and the outlook for the future was "negative". It went on to say that overall council had been well managed over the review period and although operating deficits had been incurred, at the same time underlying operating results had improved by $400,000 over two years. The infrastructure and associated maintenance backlog was estimated by council to be more than $274 million and it was unrealistic to expect this could be significantly reduced through council's own resources; which it said will be insufficient in the foreseeable future to make any significant reduction to the backlog, 92 per cent of which relates to roads and bridges.

The assessment was based on council's financial capacity (July 2009 to June 2012), its long term sustainability, and its performance in comparison to similar councils.

TCorp said council clearly understood that based on current finances, it is unsustainable into the future and increases in revenue or cuts to expenditure will be essential. It was satisfied council has a sound level of fiscal flexibility, an adequate liquidity position and the capacity to consider borrowing an additional $6.5 million by accessing the interest rebate offered by the state government.

Better practice

Since 2005 the Division of Local Government in the Premier's Department has been undertaking a program of "Promoting Better Practice" reviews of all councils. In the second half of 2012 it was council's turn and the report was released in January 2013.

Forty-three recommendations were made covering a range of issues, from:

* tightening up procedures and planning strategies to better facilitate the recently introduced Integrated Planning and Reporting Framework for local government;

As at the beginning of February there remains only one recommendation to be implemented and this will be finalised at the council meeting in March 2014.

Road map to financial sustainability

Council then volunteered to be one of two case studies for a report titled "The Road Map to Financial Sustainability for Local Governments in NSW Report" which released in January 2014.

The report confirmed that, across NSW only three per cent of councils have a positive financial sustainability rating and within three years, 48 per cent of councils could fall into the weak, or worse categories.

It concurred with TCorp about councils with small population with low incomes and a large area to cover needing the most help and reinforced the need for a review of the rating system to ensure councils can generate appropriate income and that, no matter how competent they are, some councils will always need additional financial assistance.

It stated unequivocally, that if communities want to maintain current levels of service, they must expect to contribute to the cost through additional rate increases over and above rate-pegging. Without these additional rate increases and more grants councils would have no choice but to reduce services.

The need for improvements in asset management, financial management and reporting and audit regimes was acknowledged as essential together with the requirement for a more equitable system of grant allocation from both state and federal governments. This would ensure councils with less capacity to generate income received more assistance.

It raised the issue of a state government entity which could lend money to councils at reasonable rates and provide advice. The report confirmed staff costs generally represent the biggest cost to councils and that appropriate benchmarking is essential.

Council was complimented on its willingness to be transparent and frank about it operations and the report confirmed that on average our household incomes are 15 per cent lower than the state average, excluding Sydney, and this will have an effect on council's capacity to generate the additional $20 million needed to meet recurring expenses every year.

The report stated our long-term financial plan should continue to show improvement and if this occurs then council would be in a position to borrow more money for infrastructure construction, repairs and maintenance.

Of some concern was the estimated value of depreciation which is recorded as 45 per cent of our operating expenses, significantly higher than the state average (23 per cent) and the assessed value of council's assets being ten times the operating budget, compared to the state average of 13 times.

Currently we receive from the federal government grants based of $89 per head of population in our local government area. If these payment rates were increased by the federal government, council could receive more money.

It was suggested there may still be room for more efficiencies throughout council operations which could generate additional savings. The process of reviewing and refining what we do, how we do it and whether we should continue to do it will continue to be an important part of our work.

Another point clearly made was that, over the next few years, council will need to be very careful about deciding whether it can really afford to invest in any new assets. This does not mean we won't look after assets which already exist but that new asset projects may have to be deferred until our financial position improves.

In conclusion the report indicated that perhaps the situation in which council finds itself it the result of decisions made by previous councils about what were reasonable levels of service to provide to, and rates and charges to levy upon to the community. It reiterated that we need to either, increase income in order to maintain current service levels or, reduce services to ensure they are affordable.

In conclusion

Back to the beginning, back to the pencil.

Council can provide services for which the community is willing to pay however; we will all need to ask ourselves what will be difficult questions in order to establish what these services are.

We must continue to actively pursue cost-effective, fit for purpose i.e. not over engineered or designed, solutions to our challenges and be willing to think differently about how to do things in order to ensure everyone gets the biggest bang for their buck."